The Soaring Price Of Jade

The New York Times had an intriguing story on the skyrocketing price of jade in China. According to the article, the demand for jade among China's newly rich "appears to have reached a frenzy in the past year or two." The price of the finest jade has increased tenfold over the past decade, to $3000 an ounce, making it far more valuable than gold.

I'm glad someone reporting on this trend, which I started noticing late last year. At my son's baptism, in December, a friend of mine came from the U.S. to serve as the godfather. On his last day here in Beijing, we took him to our local department store to pick out a gift for his wife. When we looked at the jade pieces on display, we were astonished at the prices. Several modest-looking bracelets were going for over US$100,000 a piece, while only a few of the smaller items cost less than US$1,000 -- and keep in mind, this was a mid-range neighborhood retail outleet, not a high-end establishment.

When we expressed our surprise to the sales clerks, they said that the price of jade had surged at least 50% over the past few months. I wanted to write about this at the time, but wasn't sure how to confirm what we had been told. Unlike gold, which can be melted down and has a fairly objective price based on weight and purity, every piece of jade is unique. Its value lies in the eyes of the beholder, and depends on more subjective evaluations of its size, shape, translucence, color, and craftsmanship. So as far as I'm aware, there's no such thing as a "jade index," just a more general impression of where the market stands.

(It's worth pointing out that there are two entirely different minerals commonly referred to as "jade". Nephrite, which is usually milky or greenish white, has been mined throughout China from ancient times. These days the most prized specimens come from Khotan, a Silk Road oasis in China's western province of Xinjiang -- the focus of the Times article. Jadeite, which is usually a deep emerald green, mainly comes from Burma and was only imported much later in Chinese history. The Chinese consider both of these minerals "jade," which only further adds to the complexity of the market.)

The rising price of jade -- especially over the past year or so -- might be merely an interesting curiosity, except that it fits with several of more important trends shaping the Chinese economy that I've been discussing in this blog.

The channeling of China's savings into "stores of value," like gold or vacant real estate, that are themselves unproductive but offer people a place to stash their cash given a limited choice of alternatives. I've noted many times the central role this factor plays in fueling China's property market. I've also noted how, when the government stepped in with "cooling measures" to rein in real estate speculation, plenty of Chinese investors switched from property to gold, which served much the same need. The rising price of jade suggests, not surprisingly, that it is also playing a similar function.

Asset inflation, due to the large amounts of newly-created money sloshing around in the Chinese economy. China's money supply expanded by over 30% last year (year on year) and nearly 20% again this year, yet economists are scratching their heads why this has not shown up in consumer inflation (at least according to official staistics, which has August CPI at 3.5%). I've argued that the excess money has been going mainly into savings rather than consumption, bidding up prices in real estate, gold, and (now apparently) jade, hence the latest rise in jade prices.

The role of unreported "grey income" in China's economy. A recent report by Wang Xiaolu of the China Reform Foundation, published by Credit Suisse, has attracted a great deal of attention by claiming that wealthy Chinese have US$1.5 trillion in hidden income (accounting for over 30% of GDP), presumably derived from bribes, kickbacks, or tax evasion. Portable, non-traceable assets like gold and jade are an ideal form of storing such gains -- far better than bank accounts, which can be traced and confiscated, or real estate, which to avoid scrutiny would have to be registered and held through relatives or other nominees. If Wang's study is accurate, no wonder the market for jade is booming.

So far from being a curious but inconsequential anecdote from China's far west, the explosion in jade prices -- as I've suspected for many months now -- actually confirms a much broader story about what is really happening in the Chinese economy.